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IEA - SMPC Committee votes seven to two cut Bank rate
In its third quarterly hybrid meeting of 2025, held on 15 July, there was a majority agreement that monetary policy needed to be eased, and the majority of the Shadow Monetary Policy Committee (SMPC) voted to cut the Bank rate immediately from 4.25% to 4%.
Labour market softening, reflected in rising unemployment, reduced momentum, and relatively weak economic growth signals from retail sales, manufacturing output, and monthly GDP data, suggested that cutting rates would help to pre-empt further deterioration. There was a view that inflation, though the headline rate remains relatively high, was not a key source of concern, especially given that money supply growth remains modest. Oil prices are down year on year, and tariffs could weaken GDP growth further. UK forecasts of 1% for this year and next also suggest only a modest risk of an upsurge of inflation pressure. Therefore, there was a consensus view that the bank rate should be cut to 4%.
A breakdown of the vote showed that four members voted for a 25-basis-point cut, and three members for a 50-basis-point cut. Two members voted to hold rates steady. In terms of the future bias, the majority opinion was for keeping rates at 4% and assessing economic conditions from meeting to meeting and adopting a ‘wait and see’ approach. Two members, however, expressed a desire for further easing based on worries that a 4% Bank rate, given forecasts of 1% GDP growth, meant that monetary policy was still too tight.
Several members emphasised the desirability for M4x growth to remain within a range (eg 2 to 6%) and that the Bank of England should set intermediate monetary targets that track M4 growth alongside inflation and GDP to inform further rate decisions.
On QT, most members advocate pausing or suspending the policy, citing fragile credit conditions and uncertainty around fiscal policy, until stronger private credit growth and market stability are more assured. However, two members voted to continue QT on the basis that it was more important to reduce the outstanding exposure of the public sector to government debt.
There was also discussion that UK economic weakness may stem from structural or supply-side issues and not just insufficient domestic demand, and that there should be a focus on higher incentives and reduced regulatory burdens to support productivity.
The SMPC is a group of economists who have gathered quarterly at the IEA since July 1997. It was the first such group in Britain, and it gathers regularly to debate the issues involved, distinguishing the SMPC from the similar exercises carried out elsewhere. To ensure that nine votes are cast each month, it carries a pool of ‘spare’ members. This can lead to changes in the aggregate vote, depending on who contributed to a particular poll. As a result, the nine independent and named analyses should be regarded as more significant than the exact overall vote.
Notes to Editor
The full meeting minutes can be read here.
The Shadow Monetary Policy Committee (SMPC) is a group of independent economists whose purpose is to monitor the decisions of the Bank of England’s official Monetary Policy Committee and make policy recommendations of its own.
The SMPC has met once a quarter since July 1997 at the Institute of Economic Affairs (IEA). In those months where there is not a physical gathering, the SMPC conducts an email poll.
Read previous SMPC meeting minutes here.
